Pension insurance for self-employed persons (YEL) – why it is far more important than many people realise
The self-employed person’s pension insurance (YEL) is one of the issues that nearly every new entrepreneur encounters right at the start of their business. For many entrepreneurs, YEL is a mandatory payment that seems tedious and raises questions about how much they should pay. In reality, however, YEL is much more than just a pension contribution.
“YEL is the foundation of an entrepreneur’s social security and has a significant impact on things like sickness allowance, parental allowance, unemployment benefits and their future pension,” says Tommi Virkama, Director of Startia.
“For small business owners in particular, the importance of YEL becomes obvious when their work is interrupted due to illness, an accident or parental leave.”
What exactly is YEL?
YEL, or the self-employed person’s pension insurance, is a statutory insurance for entrepreneurs in Finland. Although its name refers to a pension, YEL has a much broader impact on an entrepreneur’s financial security.
Your YEL earnings determine, among other things, your future pension, sickness allowance, daily allowance for parents, unemployment benefit, rehabilitation subsidy, disability allowance and any survivor’s pension you may be entitled to.
When is YEL insurance mandatory?
An entrepreneur must take out YEL insurance if:
- they are between the ages of 18 and 67
- their business activities last at least four months
- the entrepreneur works in their own business
- their YEL income exceeds the annual threshold. (In 2026, an entrepreneur’s confirmed annual income has to be at least €9,423.09. In practice, this amounts to approximately €785 per month.)
In practice, YEL applies to many different types of entrepreneurs: private entrepreneurs, owners of limited liability companies, owners of single-person businesses, freelancers and, in some cases, light entrepreneurs.
YEL income is not the same as the company’s profit
One of the most common misconceptions concerns YEL income. YEL income does not refer to the company’s revenue, the company’s profit, or money withdrawn by the entrepreneur into their personal account.
It is a matter of estimating what a reasonable wage for performing similar work would be.
In practice, this means asking yourself: “How much would I pay an employee for this work?” Both YEL contributions and the entrepreneur’s social security are based on this very estimate.
How much are YEL contributions?
YEL contributions are calculated as a percentage of your confirmed income. In practice, YEL contributions are usually about one-quarter of your confirmed annual income.
For example, if your YEL income is €20,000 per year, your YEL contributions will amount to approximately €5,000 per year.
New entrepreneurs usually receive a discount on their YEL contributions for the first few years (-22% for the first 48 months), which helps ease their costs in the early stages. What’s more, YEL contributions are tax-deductible.
Why do many entrepreneurs keep their YEL contributions as low as possible?
For many small business owners, YEL is one of their largest mandatory monthly expenses. That is why you might be tempted to set your income as low as possible, especially in the early stages of business.
In the short term, a lower YEL means lower monthly expenses. In the long term, however, an income that is too low can significantly undermine your financial security as an entrepreneur.
“You may not realise that your monthly YEL contribution is too low until a problem arises. Often entrepreneurs only start paying attention to it when something unexpected happens. If an entrepreneur falls ill for an extended period and is unable to work, their sickness allowance may be very low because it is largely based on their YEL income,” Virkama points out.
If an entrepreneur’s YEL contribution is too low, their income can plummet during sick leave, even while the company’s expenses continue as normal. In such cases, the entrepreneur’s financial security is very weak.
Parental leave, unemployment benefit and pension are also determined based on YEL
Until they have children and start thinking about parental leave, many entrepreneurs do not realise that their parental allowance is also largely determined by their YEL income. A YEL income that is too low can directly affect the amount of parental allowance a mother or father is entitled to, as well as the daily allowance for parents.
YEL income also affects an entrepreneur’s eligibility for earnings-related daily allowance. If their income is too low, they may not meet the requirements for earnings-related daily allowance, in which case any daily allowance they receive will be very small.
Although retirement may seem like a distant concern to many new entrepreneurs, YEL directly affects how much pension an entrepreneur accumulates. If you keep your YEL contributions very low for years, the result will be a lower pension when you retire.
How can you determine the appropriate YEL level for you?
Instead of simply aiming for the lowest possible contribution, you should consider your YEL income realistically.
Here are some good questions to ask yourself:
- How much would I pay an employee for this work?
- If I were on sick leave, would I get by at my current YEL level?
- What kind of security do I need for my family?
- How important is my future pension security to me?
“You should view YEL as part of your own risk management and safety net. A small business owner’s most important resource is their own ability to work. If you can’t work, your company’s takings may dry up quickly,” Virkama points out.
